Natural-gas production to grow in Utica shale

Lack of infrastructure has limited Chesapeake Energy’s natural-gas production in the Utica shale play of eastern Ohio, but that situation is expected to change dramatically as pipeline and processing plants come online later this year.

Lack of infrastructure has limited Chesapeake Energy’s natural-gas production in the Utica shale play of eastern Ohio, but that situation is expected to change dramatically as pipeline and processing plants come online later this year.

By the end of 2013, the company hopes to be producing 330 million cubic feet equivalent of natural gas per day, or 55,000 barrels of oil equivalent.

“Achieving this level will be dependent on the timely startup of critical processing infrastructure at multiple facilities in the months ahead,” Steve Dixon, acting CEO of the Oklahoma City-based company, said in a national conference call Monday.

Because of infrastructure constraints, the company is selling the output of just 54 wells and is producing 75 million cubic feet equivalent per day from the Utica play.

Infrastructure projects under construction include M3 Midstream’s $1 billion Utica East Ohio Buckeye system, which will consist of cryogenic plants in Leesville and Kensington and a fractionation plant in Scio. The Kensington and Scio facilities are expected to begin operation this summer, while the Leesville plant will open in 2014.

Chesapeake remains the dominant player in the natural-gas industry in eastern Ohio, having drilled 240 wells — about 75 percent of the wells drilled in the Utica play so far. It has leased about 1 million acres.

According to Ohio Department of Natural Resources data, the bulk of those wells are in Carroll, Columbiana, Harrison, Jefferson, Mahoning, Portage and Stark counties.

The company has a producing well in Warren Township in Tuscarawas County, as well as permitted wells in Wayne, Clay, Perry and Warren townships.

It continues to expand the number of wells it operates. ODNR issued four drilling permits to Chesapeake in Carroll County during the week of March 17-23 — two in Union Township, one in Fox and one in Perry.

During the conference call, Dixon focused on outstanding recent results from its six-well pad at the Scott Unit in Perry Township, between Carrollton and Scio.

The six wells have an average 24-hour restricted test rate of 1,250 barrels of oil equivalent per day, which includes 310 barrels of oil, 200 barrels of natural gas liquids and 4.4 million cubic feet of natural gas per day, he said.

Well costs for this group averaged about $6.5 million.

Chesapeake recently submitted its 2012 production data and other information on wells drilled in 2011 and 2012 to ODNR.

“Due to the infrastructure constraints I mentioned before, it was necessary to curtail and restrict production on the wells placed into service last year,” Dixon said. “As a result, we believe the data reported to the ODNR is not indicative of the productive capacity of Utica Shale wells in our development fairway.”

Based on the company’s geoscientific, petrophysical and engineering research over the last two years, Chesapeake is targeting ultimate reserve recoveries of 5 billion to 10 billion cubic feet equivalent per well in the Utica play.

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Taking into consideration planned well costs and current market prices, the company hopes to see drilling rates of return of 40 percent to 80 percent, with an average return in excess of 40 percent.